Nokia Shares – The Bargain of The Decade? - 14/02/11
Posted by Cloudnet Telecommunications on Mon, Feb 14, 2011 @ 04:22 AM
With Nokia shares at a low point David Hill explains why the Microsoft deal is good for Nokia and an amazing opportunity for investors.
Nokia and Microsoft announced a strategic alliance on Friday the
11th February. On the Nokia website the news transcends all else. On the Microsoft website it is nowhere.
So this is clearly a big deal for Nokia and an alliance for Microsoft. Nokia’s shares tumbled on the news, whilst Microsoft didn’t move.
This new partnership replaces the Symbian OS with Microsoft's Windows Phone 7 as the software for Nokia's smartphones, which accounts for some 30% of their handset revenue.
The company will continue to support Symbian and MeeGo platforms in very limited ways. The deal also involves adding Nokia Maps into Microsoft's maps, and Nokia's app store, called Ovi, will be folded into Microsoft Store. The companies will work together on marketing.
It is clear the pundits say that Nokia are in big trouble, their market share has tanked under the assault from Google, Apple and RIM. Yes it is true that the market share for smart phones belonging to Nokia has dropped from 70% in 2007 to 36% today but come on. 70% was clearly unsustainable – almost a monopoly.
The deal initially has been slated widely from the Nokia point of view with the shares slumping 14% on the announcement. Bloggers and commentators have widely criticised it as being the beginning of the end of Nokia.
Nokia are hardly a basket case. They have revenues exceeding $70bn, are significantly profitable and have $9bn in cash. They have a P/E of under 14. They are valued at around $35bn. This is not a company that is about to go broke.
The deal with Microsoft means that they can stop trying to invent a hit operating system and stop trying to reinvent Symbian to be that hit. This may well mean that they can save a billion a year.
This deal in my mind frees them from an intractable problem and allows them to concentrate on making phones which beat the opposition. Clearly they have to technically innovate but within this deal there is nothing preventing that. With the correct phone the $20 that Microsoft get is a small price to pay for rejoining the smart phones party.
Does this deal put Nokia into play as a takeover target? Steve Ballmer of Microsoft was asked the question and replied that it hadn’t been mentioned. That is a mile away from “no”. However given that Microsoft has a P/E of about 11 compared to that of Nokia hovering around 14 I don’t see the bidder being Microsoft. It is difficult to see who else has the fire power and the will.
The market for mobile data is rocketing. Nokia are number 1 with a formidable exposure to the east and a chief exec who has made the first tough call.
With shares trading at around $9 and a fair market valuation of $20 in a booming market place – this surely makes Nokia a buy. I’m going to get some of their shares.
Written by David Hill, Chairman, Birchills Telecom
Birchills Telecom is the friendly professional business phone systems company based in Walsall Our team has developed our hosted VoIP phone systems platform and the technology behind it. Birchills Telecom is the only company to concentrate purely on our Internet based phone systems solution – the switchboard in the sky.
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